More Excuses, Same Results

DETROIT -- Sales at General Motors Corp. dropped sharply in June as the No. 1 U.S. automaker grappled with the long-term impact of its shrinking market share.

GM's top sales executive said Tuesday that he was hopeful that the company's U.S. market share had hit bottom at 22 percent in June, but acknowledged that gains will be hard to come by until next year.

"Is that the bottom? I'm not a clairvoyant, but I certainly hope so," said Mark LaNeve, GM's head of North American sales and marketing.

On the day after announcing the unprecedented buyouts and retirements of 35,000 of its hourly workers, GM broke the bad news that its U.S. vehicle sales fell more than 30 percent in June compared with last year's results.

LaNeve said that year-to-year comparisons for June and July "are going to be brutal" because of last summer's heavy incentive levels.

Although record sales in June 2005 were pumped up by employee-discount deals, Wall Street reacted harshly to the steep decline this month. GM shares closed at $25.90, down $1.85 or 6.7 percent, in trading Tuesday on the New York Stock Exchange. It was their biggest one-day drop since Oct. 27, 2005.

Industry skeptical of GM

The same industry analysts who applauded GM's blue-collar cutbacks issued dire warnings about the company's turnaround prospects if its sales continue to slide.

"The bottom line is, cost savings are not enough to overcome market share loss," said Rod Lache of Deutsche Bank.

"Market-share losses, and the need to execute on the other cost-based aspects of the (turnaround) plan such as plant closings, remain a concern," said S&P analyst Robert Schulz.

Paul Ballew, GM's chief market analyst, said Tuesday that the automaker's share of the retail U.S. vehicle market in June was down from about a 23.5-percent share at the beginning of the year and 32.4 percent in June of last year.

Sales for the month suffered by comparison to the blowout numbers recorded in June 2005, when GM introduced employee-pricing discounts that took the market by storm.

"We'll be down significantly (this June) since a year ago 30 percent in all likelihood," Ballew said. "But it's not unexpected. It's where we thought we would be."

To cope with lower sales, GM took 1 million vehicle units out of production last year, and expects to cut another 1 million this year. That leaves the automaker with an annual "running rate" of 3 million retail vehicle sales in the United States, LaNeve said.

"If you look over the six-month trend line, it's been pretty stable," LaNeve said in a conference call with reporters and analysts. "Do I want it to be higher? Absolutely, but I want to do it the right way."

Increasing sales the "right way," he said, is to bring out high-quality products that sell on their merits rather than on a rising level of rebates, discounts and incentives.

LaNeve said GM will be "aggressive" in its marketing effort, but the company will not follow competitors who reinstitute employee-discount pricing.

"We are not planning on reviving employee pricing," he said. "I personally don't think it's going to work as well as last year."

Taking a new approach

Instead, GM will kick off a special "72-hour sale" on Thursday that features "zero-percent" financing for up to 72 months on new 2006 models from the company's Chevrolet, Buick, Pontiac and GMC divisions.

The sale -- held over six 12-hour days through July 5 -- is a traditional summer promotion rather than a declaration of a deep discounting war. "We don't really want to go to market that way anymore," LaNeve said.

Ballew said that overall U.S. vehicle sales will be down in June, with the industry running at a "seasonally adjusted" annual sales rate of about 17 million vehicles.

John Murphy of Merrill Lynch said consumer demand took "an early vacation" in June, and predicted that overall vehicle sales would be down 12 percent for the month.

Murphy predicted that GM's June sales would fall 36 percent from a year earlier, with Ford Motor Co. and DaimlerChrysler's Chrysler unit both reporting declines of about 6 percent. He said Asian brands are expected to be up, with Toyota Motor Corp. leading the pack with an expected 10-percent gain.

At GM, LaNeve said the overall corporate turnaround plan is based on stabilizing market share, then capturing new customers with upcoming products such as Saturn Aura sedan, the GMC Acadia SUV, and a new design of its top-selling vehicle, the Chevrolet Silverado full-size pickup.

"Our (market) share is not going to change until we get a real strong lift from new product, and we really won't get that until 2007," he said.

Higher gas prices continue to impact sales of pickups and SUVs, according to Ballew. Consumers are continuing to shift from trucks into passenger cars, with trucks accounting for 51 percent of the market this year compared to 54 percent in the comparable period of 2005.

GM, however, has bucked the trend somewhat by selling more option-laden, big SUVs such as the Yukon Denali and Cadillac Escalade. Sales of those high-sticker vehicles have helped GM improve its average vehicle transaction price to $26,000 this year.